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Why you shouldn't depend on your real estate investments to fund retirement


For a long time, buying real estate was a solid investment and even a potential way to fund retirement. Here's why you need to be careful with how you invest.

Some doctors dream of funding a comfortable retirement by acquiring real estate for their practices and then selling it for a profit when they are ready to retire. Although it sounds good, remember that buying and selling real estate often depends on market conditions and, very importantly, the location of the property.

If your goal is to fund your retirement from the equity of the practice’s property using its increasing market value, then you will need a sound entry/exit strategy and be willing to face the challenges of ownership. Here are three issues you will need to consider before you begin looking for property to acquire.

  • Location:  Fundamental market conditions-such as population density, the physical attractiveness of the building and the surrounding neighborhood, and the supply of and demand for the particular type of space will be key in determining the ultimate value of the real estate you purchase.

  • The size and type of building. If you are thinking of purchasing a small, stand-alone property suitable for housing a solo practice, an important consideration should be who will buy it from you.  A growing  number of physicians are working for hospitals rather than going into independent practice, so candidates to purchase such properties are declining.

Because this segment of the real estate market is shrinking, you might have to sell the property to an entity other than a medical practice. If so, you may incur costs for removing equipment not needed by a non-medical business.

What if you decide to purchase an office building or strip mall to house your practice and become a landlord? If so, you will need to determine whether ownership responsibilities will compete with your role as a physician.

If your practice is managing a mixed-use property, you may encounter non-medical issues such as renovation, heating, ventilating, and air conditioning,  security, snow removal, and parking lot maintenance, to name just a few considerations.

Despite the management challenges, however, tackling them offers potential benefits to solo practitioners. When you close your practice and eventually sell the property, the proceeds will be yours. That leads to the third issue to consider:

  • The roles and responsibilities of partners in the practice when it comes to real estate. As a solo practitioner, you do not have to share in decision-making-or profits-when it comes time to sell. If you have partners, however, things become more complicated. For example:

  • Will each partner own an equal share of the real estate?

  • What happens if a partner does not wish to participate in real estate ownership?

  • What if a new partner wants to buy in to the property? How will you arrive at an appropriate price for the buy-in?

Clearly, owning your own medical building takes careful planning to ensure that you can retire someday on your profits from real estate. You can improve your chances of being successful by being aware of the pitfalls, exercising caution, and seeking professional advice before embarking on any deal.

The author is president of Healthcare Real Estate Advisors, a nationwide real estate consulting and advisory firm based in New York, New York.




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